sFunding serves as an essential means of financial support. Utilised by individuals, businesses and organisations alike, it is pursued so that the subject may achieve its various goals and objectives.
Whether it’s launching a startup, conducting medical or scientific research, supporting nonprofit organisations, undertaking large-scale infrastructure projects, or providing aid during emergencies or natural disasters, funding plays a pivotal role.
Nevertheless, attaining these objectives is not always as simple as getting the necessary funding right away. Achieving these goals often involves a multi-stage process that involves securing funding through various rounds, rather than obtaining it in a single swallow.
Defining Startup Series Funding
Rounds of funding are often the first stage of external investment and generally follow the terms Series A, B, and C, and so on. The letters are in place to help define each separate fund-raising occurrence, with each generally looking to achieve a higher aim than the last.
These series of funding typically follow the pattern of seed funding or angel investing. The former specifically refers to the funding injected into startups to get them off the ground, and the latter similarly refers to financial aid given by an angel investor usually into a startup and typically in return for a stake of it.
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What Comes Before Series Funding For a Startup?
Before the Series A or B funding rounds can be initiated, the individual or business looking for financial aid must undertake what is known as a funding valuation.
This is an essential process that can determine the worth of the company looking to gain funding. Several methods can be used to conduct this, including assessing the estimated revenue of how much the company is looking to make, the size of its market and its overall market share.
Pre-Seed and Seed Funding
After a funding valuation, an individual or business can proceed to gain the funding they need, something that is often done in a series of rounds. This will start with a round of seed funding, sometimes even a pre-seed round, and continue with A, B, and so on until the company’s goal is achieved.
Seed and pre-seed funding are the earliest stages of funding, and they are often injected by close friends, family, and general supporters of the venture, though can also be offered by external angel and other private investors.
It is important to note that seed funding isn’t always intended to sustain a company or venture long-term. It may just be enough to get it off the ground and running. The exact amount targeted for seed funding is ambiguous and varies based on the specific venture and its valuation in terms of funding.
Moving On to Series Funding
Following a funding valuation and an initial seed or pre-seed funding phase, companies may move on to initiating a series of funding rounds to appeal to potential investors.
This is typically aimed at private investors, including angel investors, high-net-worth individuals (HNWIs), and even friends and family. Alternatively, ventures may explore public avenues, engaging in crowdfunding rounds that involve reaching out to a wide audience, often online, to secure support.
Investors will participate in these funding ventures because they have confidence in the potential success of the company or proposed initiative. And, of course, more often than not, providing funds is done in return for an acquired stake in the venture’s future success.
Series A Funding
First things first: Following the seed stage, the subsequent funding rounds kick off with Series A.
In the typical funding trajectory, what generally follows seed funding is a stage of investment from venture capitalists (VCs), and series funding is no different.
After the seed funding stage, the company or initiative at hand will (hopefully) have some financial backing and traction in the market. Now, it can progress to the Series A round to propel it to the next level.
A well-developed business plan and key performance indicators (KPI) showcasing the company’s positive trajectory become instrumental in attracting investors during the Series A funding round. At this point, what investors want to see is innovative and viable ideas they can genuinely believe in.
These investors may even look to help shape the company or initiative at hand, especially if it’s a startup still finding its way in the dark. They will typically be angel investors but may also have been found through the popular method of crowdfunding.
Regarding the amount of funding that will be done at this stage, according to Investopedia, from January to May 2023 the Series A funding average was $22 million. But, of course, this figure varies and so should be taken with a pinch of salt.
Series B Funding
Following Series A, businesses can advance to the subsequent stage known as Series B.
Series B is a little different from its predecessor. Namely, at this point, investors will expect the company or initiative at hand to be past its initial development stage. A promising idea will no longer be sufficient; the business must demonstrate tangible growth and success in its chosen market. It must now be able to show it is ready to succeed on a grander scale.
While the primary goal of Series B is to secure a higher funding amount than Series A, the mechanics of this round are relatively similar to its forerunner. It will attract similar investors (though will undoubtedly hope to add new VCs to the mix), and the business is now expected to evolve into a more advanced and mature entity.
What Comes Next?
Unsurprisingly, the subsequent phase of funding is Series C. Not all companies move seamlessly through this alphabetic procession as the rounds of funding they go through will depend upon the unique financial goals and aspirations of each company.
Companies that do move onto Series C will have already achieved some success in their field. The funding acquired in earlier rounds will have been dedicated to fostering business growth. Now, the focus will shift toward advancing products or ventures.
Whether this means scaling its operations or moving into a new market, a Series C funding round serves as a clear indicator of a business’s fervent desire to expand, achieving success and, one would hope, wide renowned.